Reaching 40 is a huge milestone. You’ve grown in your career, likely own a home, and somehow survived the early days of parenting. It’s also very likely that along the way you’ve neglected your financial life. It was easy to put saving on the back burner when you spent early adulthood paying back student loan debt, raising kids, and buying a house.
In fact, according to the Employee Benefit Research Institute’s annual Retirement Confidence Survey, nearly a third of workers age 35 to 44 have less than $1,000 in retirement savings. This is a scary statistic, and when you look at the retirement savings statistics for just women the numbers are even worse. According to the Department of Labor, “of the 63 million wage and salaried women (age 21 to 64) working in the United States, just 44 percent participated in a retirement plan”. This article also points out that women, on average, live at least 2 years longer than men but work fewer years and save less.
Even though at 40 retirement is still 20 plus years away, it’s crucial that you don’t delay saving any longer. Here are 4 tips to help you get started with retirement planning at 40:
Take a Hard Look at Your Current Financial Situation
If trying to save for the future feels like an impossible goal, it’s probably time to take a hard look at where your money is really going each month. Sit down and review your last 3 months of spending. Question every expense, and find things you can cut.
Pay attention to the language you use to describe your expenses. Do you find yourself using phrases such as “I have to have this” or “there is no way I could cut this from my budget”? There are very few things in life we actually “have to have,” and giving ourselves permission to simplify can be freeing. Cut the expenses that are least painful first. Are you really using that gym membership? Have you called your cell phone provider to see if they have any promotions or cheaper plans?
There are many different free websites and apps that can help you create a budget. One popular tool is Mint.com, which allows you to see all your accounts in one place, track your spending, and will provide you with your credit score for free. Another free app is Level Money, which not only tracks your purchases but will also estimate how much money you have left to spend.
Pick one that works well for your family and make a commitment to stick to a spending plan.
Learn to Balance Your Financial Goals
Saving for your kids college, paying down debt, and saving for your own retirement can feel like competing goals. However, it’s important to not take an all or nothing approach. Yes, paying down high interest debt is important, but so is preparing for your future. If you just focus on the one without considering the other, you’re going to have a hard time building your retirement savings. At the very least, make sure you take advantage of any employer match you’re offered through your retirement plan at work.
Also, if you’ve just started retirement planning at 40, then that needs to be your priority even over saving for your child’s college education. Of course you love your kids and want to give them the best, but becoming dependent on them in your old age is not the way to do it. You’re children will have options to pay for school such as financial aid, scholarships, work study programs, and even federal student loans. There are no scholarships to pay for retirement so do your kids a favor, and start saving now.
If trying to balance your goals feels a little overwhelming, consider talking to a financial planner. You don’t need to be “rich” to work with a financial planner. You can hire a planner who charges on an hourly basis, and they can help you with setting goals and retirement planning at 40 even if you don’t yet have savings in place. Garret Planning Network, for example, is a network of financial advisors who charge by the hour to provide financial advice. You can go to their website to find a financial planner near you.
Maximize Employer Benefits & Consider a Roth IRA
When it comes to retirement planning, contributing to your 401k is a great place to start especially if your employer offers a company match. If your company doesn’t offer a retirement plan or if you want additional options, consider a Roth IRA.
When you contribute to your 401k, you receive a tax break now, but you pay taxes later when you take the money out. When you contribute to a Roth IRA, you pay taxes now and withdrawal the money tax free in retirement. It’s nice to have a mix of taxable and tax free accounts to withdrawal from in retirement.
Opening a Roth IRA is fairly simple. You can do it yourself by contacting an investment company such as Fidelity, Scottrade, or Vanguard. If you’d prefer some extra help, contact a financial advisor through Garrett Planning Network who can guide you in setting up your account and picking investments.
Keep in mind that the amount you are able to contribute to a Roth IRA might be reduced if you or your spouse has a retirement plan at work. You can check out the contribution limits on the IRS website.
Save Your Raises & Increase Your Savings as You Go
Trying to determine how much you need to save for a comfortable retirement can be frightening. You can use online retirement calculators such as Bankrate.com’s calculator, but don’t let the amount it tells you to save overwhelm you. Building a million dollar or more retirement portfolio would be fantastic, but saving even a fraction of that is better than saving nothing.
Start small and increase your savings as you go. Start by contributing just 1% of your salary to your 401k and in 6 months increase it another 1%. If you’re salary is $60,000 a year and you’re paid biweekly, a 1% contribution comes out to about $23 a paycheck. It will impact your net paycheck even less than $23 because it will reduce the amount of taxes that are taken out of your check. If you’re employer matches that 1% contribution, you just doubled your savings.
If you’re just starting the process of retirement planning at 40, you may feel far behind, but the good news is you still have time to catch up. Review where you’re at now, find ways to cut back, increase your savings regularly such as every time you get a raise, and you’ll be well on your way to building a successful financial future.